Pre-Pay, DIY and the Future of Wireless

Earlier this month, several senators banded together to introduce the Early Termination Fee, Transparency and Fairness Act, intended to prevent wireless carriers from charging a penalty to consumers that is higher than the discount on the cell phone that the wireless company offers for entering into a multi-year contract. It's a good thing, since a recent research report from New Millenium Research indicates 58% of consumers 25-34 don't know when their contract-based wireless phone penalty ends. The number increases to 61 percent with consumers ages 35-44.

When two year contracts were introduced to cell phone customers, life was a lot simpler, because carriers could look at past consumer behavior as a model for future subsidization of handsets, and not much changed in voice for a couple of years. But today, even pre-paid phones have megapixel-rated cameras, BT and access to web email and IM. The high-end smartphones and broadband data sticks that are sold with all you can eat data may be a good value for the "fat kid at the front of the buffet" (thank you, Mark Cuban), but may seem a big leap economically for consumers who are trying to manage their monthly overhead in this recession.

It's only a matter of time until a low cost Android phone comes to market in the US, and the mobile web will be consumable on an a la carte basis, making it potentially accessible to the prepaid market. Since the app marketplace on Android wll be enabled with APIs for carrier billing by the end of the year, the new pricing model for value shoppers may really be DIY, where consumers put together the apps and services on their phone each month from a buffet of apps and web-based services that can be turned on or off monthly, or based on a level of prepaid credit.

Design it yourself can give the consumer a sense of control, both in terms of how they manage what they spend on, and what they value most in product capablities and usage. In the home improvement market, do -it-yourselfers devalue the expert laborer, and believe they save money in executing their remodel or fix-it project through their own sweat and hard work.  Consumers may devalue the fancy user interface designed by an HTC or Samsung but might pay for a low cost piece of hardware if it gives them higher utility phone that can support them in their moment of need. If I run out of gas, I'll pay in the moment to know if a service station is in walking distance. I may not be willing to pay the same amount for the right to access that service just in case I run out of gas.

Most prepaid customers don't know what they are missing and are content with what little they have because in the long run they feel the simplicity of their device experience gives them more control over their bill. Unexpected billable events are harder to come by when the device is limited in its capabilities.